FRANCHISE

AGREEMENT
Angelica Pua Castro

WHAT IS A
FRANCHISE?
A franchise is the agreementor license between two
legally independent parties which gives:
a person or group of people (franchisee) the right
to market a product or service using the
trademark or trade name of another business
(franchisor)

TYPES OF
FRANCHISES
Product distribution franchises simply sell the franchisor’s
products and are supplier-dealer relation- ships. In
product distribution franchising, the franchisor licenses its
trademark and logo to the franchisees but typically does
not provide them with an entire system for running their
business.
Business format franchises, on the other hand, not only use
a franchisor’s product, service and trade- mark, but also
the complete method to conduct the business itself, such as
the marketing plan and oper- ations manuals. Business
format franchises are the most common type of franchise

TYPES OF FRANCHISE
ARRANGEMENTS
Two types of franchising
arrangements:
✔ single-unit (direct-unit)
franchise
✔ multi-unit franchise:
• area development
• master franchise(sub-
franchising)

WHAT ARE THE

ALTERNATIVES TO
FRANCHISING?
In addition to franchising, there are two other popular methods by which businesses
expand their market and distribution channels:
✔ distributorships
✔ licensing
 WHAT ARE THE ADVANTAGES OF OWNING A FRANCHISE?

✔ “Owning a franchise allows you to go into business for yourself, but not by yourself.”

✔ A franchise provides franchisees with a certain level of independence where they can
operate their business.

✔ A franchise provides an established product or service which already enjoys widespread

brand- name recognition. This gives the franchisee the benefits of customer awareness which
would ordinarily take years to establish.

✔ A franchise increases your chances of business success because you are associating with
proven products and methods.

✔ Franchises may offer consumers the attraction of a certain level of quality and
consistency because it is mandated by the franchise agreement.

DISADVANTAGES
✔ The franchisee is not completely independent. Franchisees are required to operate their businesses
according to the procedures and restrictions set forth by the franchisor in the franchise agreement.
These restrictions usually include the products or services which can be offered, pricing and geographic
territory. For some people, this is the most serious disadvantage to becoming a franchisee.

✔ In addition to the initialfranchise fee, franchisees must pay ongoingroyalties and advertising fees.
✔ Franchisees must be careful to balance restrictions and support provided by the franchisor with their
own ability to manage their business.

✔ A damaged, system-wide image can result if other franchisees are performing poorly or the franchisor
runs into an unforeseen problem.

✔ The term (duration) of a franchise agreement is usually limited and the franchisee may have little or
no say about the terms of a termination.

LEGAL ISSUES OF FRANCHISING

A good relationship between the franchisor and franchisee is critical
for the success of both parties. Since franchising establishes a
business relationship for years, the foundation must be carefully
built by having a clear understanding of the franchise program.
Unfortunately, understanding the legal language of franchising can be
daunting. The advice of an experienced franchise attorney should be
sought to help a prospective franchisee understand the legal issues
and to protect them from making costly mistakes.
Franchising is governed by federal and state laws that require
franchisors to provide prospective franchisees with information that
describes the franchisor-franchisee relationship.

PERSONAL OPINION OF THE

FRANCHISE AGREEMENT
From a practical perspective, the franchise agreement offers
a strategic avenue for business expansion. However, its
success lies in clarity of terms, fairness in relationships and
adaptability to market changes. A well-structured contract
can be a catalyst for mutual growth, but efficient
management and open communication are critical to maintaining
a fruitful partnership.